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[The
following letter was sent by Johnson & Johnson to certain institutional
holders of its Common Stock beginning on April 15, 2008.]
April 15,
2008
Dear
Johnson & Johnson Shareholder:
Last
month, you received the Johnson & Johnson 2008 Proxy Statement for this
year’s Annual Meeting of Shareholders, scheduled to take place on April 24,
2008. In the Proxy Statement,
the Board of Directors recommends a vote FOR the election of each of the 12
nominees for Director.
Much to
our surprise and disappointment, Institutional Shareholder Services Inc. (ISS),
part of the RiskMetrics Group, has recommended to its institutional clients that
they withhold votes from the four members of our Compensation & Benefits
Committee -- Michael M. E. Johns, Arnold G. Langbo, William D. Perez
and Charles Prince--based on its concerns with a relatively small aspect of the
Company’s compensation program. In its 2008 report on the Company, ISS states
that the Company “provides exemplary disclosures on features of its
compensation” in its 2008 Proxy Statement. However, ISS focuses on one aspect of
one component of the Company’s overall compensation programs and has made that
the basis for their withhold recommendation: dividend equivalents on Certificate
of Extra Compensation units.
As
described in the Compensation Discussion & Analysis (CD&A) section of
the Proxy Statement, the Company’s executive compensation programs consist of
three major components: base salary, annual performance bonus and long-term
incentives. The Company has two long-term incentive programs: a long-term
incentive plan, which awards stock options and restricted stock units, and the
Certificate of Extra Compensation (CEC) Plan, which awards performance units
(CEC Units) that are paid out only upon retirement or termination. The CEC Plan
was established in 1947 and continues to be an important tool for retaining
high-performing senior managers. Currently, over 350 employees are eligible to
participate in the CEC Plan. The CD&A includes a detailed description of the
purpose and characteristics of the CEC Plan and how CEC Units are included as
part of an executive’s planned compensation.
One
feature of CEC Units is that dividend equivalents on vested and unvested CEC
Units are paid to participants in the same amount and at the same time as
dividends on the Company’s Common Stock. Dividend equivalents on
unvested CEC Units are also included in the calculation of average earnings
under the Company’s pension plans. Based on the Company’s Proxy Statement
disclosures, dividend equivalents on vested and unvested CEC Units comprised
approximately 10% of the combined total compensation of the five executive
officers named in the Proxy Statement in 2006 and 2007. For the Chairman/CEO,
dividend equivalents on CEC Units comprised less than 10% of his total
compensation in 2006 and 2007. Dividend equivalents on unvested CEC Units
represented less than one-third of the dividend equivalents received by the
Chairman/CEO in 2006 and 2007.
We
welcome feedback from our stakeholders on specific aspects of our compensation
programs, but we believe a withhold vote against directors because of one
relatively small aspect of the programs is inappropriate under these
circumstances. We believe the withhold recommendation from ISS is a
disproportionate response to a pay practice that has been a long-standing
component of our compensation programs. These directors have an established
record of excellent service to our Company and to you, its shareholders. Accordingly, we strongly urge you to
vote FOR all nominees for Director, including Messrs. Langbo, Perez and Prince
and Dr. Johns, and not follow the recommendation of ISS.
Sincerely,
/s/ James G. Cullen
James G.
Cullen
Presiding
Director
Johnson
& Johnson Board of Directors